Confidence levels in the growth prospects of small and medium-sized enterprises (SME) in South Africa dropped during the first quarter of 2014.

The 2014 first quarter Business Partners SME Index showed a 3% quarter-on-quarter decline, with 52% of the business owners surveyed having confidence that the economy would be conducive to business growth during the next year.

The survey, which measured the attitudes and confidence levels within the local SME sector, found that during the first three months of the year, 73% – 3% less than the preceding quarter – of SMEs were confident of growth in their businesses over the next 12 months.

“The first quarter SME confidence levels reflect the uneasy economic environment confronting business owners,” Business Partners MD Nazeem Martin said.

He added that a 50 basis point hike in interest rates in January, in addition to increasing fuel costs and rising inflation, had further hampered small enterprises’ outlooks.

“It is quite probable that the January 2014 interest rate hike, as well as the possibility of further interest rate increases during the year, will adversely affect these confidence levels in the coming months,” warned Martin.

Economic conditions and cash flow were cited by 31% and 25% of respondents respectively, reflecting a 2% decrease each, as factors set to challenge smaller businesses over the next six months.

About 20% of the respondents – a 4% decline on the prior quarter – indicated funding would be a key issue.

“[Fifty per cent of] respondents expressed average confidence levels that the ease of access to business finance would improve in the next 12 months, the same level recorded in the fourth quarter of 2013,” Martin added.

The SME owners surveyed also displayed average confidence levels, at 36%, that the current labour laws were conducive to the growth of South African businesses – a quarter-on-quarter decrease of 3% when compared with the fourth quarter of 2013.

Low confidence levels – at 31% – were once again recorded with regard to government’s efforts to foster SME development.

Meanwhile, a newly introduced question in the index revealed that 52% of respondents appointed new employees in the last year.

“This is an encouraging indicator as SMEs are responsible for about 60% of new jobs created annually,” Martin commented.